A trading plan can be simple or complex depending on how you want it to be, but most important of all in the end, is that you have a plan and follow its rules.
These are some of the essential points that every forex trading plan should have:
1- Trading system
This is the true essence of the trading plan. It should be your own trading system that you have tested a lot and in which you have traded for at least two months in a demo account of an online broker or in a cent account in which you risk little money.
It includes all the necessary information about your system, such as: the timeframes you use, entry and exit criteria, percentage of risk, currency pairs to trade and the number of lots you work with, among other aspects.
2- Trading routine
This is a crucial part of the trading plan because it will determine three very important things: when to analyze the market, when to open trades, and when you will evaluate your actions during the trading day.
3- Your perspective
Ask any experienced trader can tell you, one of the hardest things to do while trading is to put aside your emotions. This section of your trading plan will describe what mental state you should have when you are trading currencies or any other market:
- I’ll see what the price charts really say and not what I want them to say.
- I will make sure to work only with what my eyes see and not with what my feelings tell me.
- I will not try to take revenge on the market for losing money in any trade.
- I will not punish myself if I lose an operation. On the contrary, I will take it as an experience and move on.
4- Your weaknesses:
Yes, we all have weaknesses, but we just do not like to talk about them. But ask yourself this: How can I go further if I do not admit that I should work and improve in certain aspects? This section of the trading plan will be an objective way to keep track of everything you need to work on to become a better Forex trader.
- “I tend to open many trades. Whenever I lose a position, I get angry and immediately try to take revenge on the market”
- “I tend to close my trades early because of fear”
- “I do not always follow the rules of my system”
- “I do not follow my money management rules to the letter”
5- Your trading goals
“Earning a lot of money” is not a good goal. Sit for a few moments and think about what you really want to achieve as a Forex trader. Do you want to dedicate yourself to this for life? How much investment do you really expect to recover from your transactions based on your knowledge and experience? Your goals are not just about money. Maybe you would like to be more disciplined and gain more confidence in yourself. The goals are personal.
What do YOU want from this? Use these goals as a motivation when times get tough. These goals will be your vision and you should always keep your eyes on them!
6- The trading journal
This will be a great tool to help you become a better Forex trader. Make sure to record all your transactions and the reason why you opened them. Later you will see this and evaluate your trades and see how much progress you have made. I have seen my trading records and I have been able to realize how much I have really grown as a Forex trader.
My first trades were very basic, now I have progressed and my operations make more sense to me now. I have gained a lot of confidence in me as a trader and through my evaluation of previous trades, I have been able to really evaluate myself, correct mistakes and see that I am getting closer to meeting my goals.
This tool will help you tremendously in the long term, so it takes a few minutes of each day to record your movements of the day. Although at the beginning it can be tedious, over time you will be happy to have done it!